By Tiernan Ray

Shares of security technology vendor Palo Alto Networks (PANW) ended the day up $1.64, or 2.6%, at $65.94, giving up some earlier gains, following a couple of Street upgrades.

Stephens & Co.’s Jonathan Ruykhaver this morning raised his rating on the shares to Overweight from Equal Weight, and raised his price target to $85 from $75, writing that he hosted meetings with management and investors last week and “the tone of the meetings was very positive, in our view, suggesting continued strong fundamental drives in the nascent and fast growing Next Generation Firewall (NGFW) market.”

Palo Alto is benefitting from high-level concern inside companies about breaches, he writes:

Given the significant amount of attention surrounding APTs in the media, boardrooms, congress and elsewhere in the wake of the Target and Neiman Marcus data breaches, we believe that budget is increasingly being created to address these threats and that APT appliance evaluations are one of the top priorities for many IT organizations this year. We believe that WildFire is one of the top solutions on the market, offered at a very competitive price, and that this will enable Palo Alto to take more than their fair share of the budget being allocated to these types of solutions. We are becoming increasingly positive on the potential for WildFire to meaningfully increase cross-sell within the install base as more than 1,400 of the 3,000+ customers that use WildFire have opted to pay for the premium subscription, up from 1,000 in the previous quarter. Further, WildFire is also serving to increase initial deal sizes as more than 30% of appliances shipped during 2Q14 included the premium version of the solution, up from 20% in 1Q14. Palo Alto recently announced a significant new release of WildFire which enables it to analyze all common file types including PDFs, Office documents, and Java, in addition to executing suspicious files against different operating systems and application versions. Together with functionality added through the Morta acquisition which helps to detect the lateral movement of malware, we expect this new release to further accelerate customer adoption of the product.

A new product called the “PA-7050” has speeds of 120 billion bits per second, which “will, for the first time, take Palo Alto into the high end of the market,” he notes.

The company has also started a reseller arrangement with VMware‘s (VMW) “NSX” network virtualization product. That will “help speed what has traditionally been a manual and time-consuming process that can delay virtual application deployments by as much as two months.”

“Importantly for Palo Alto, customers will be able to purchase the complete bundled solution directly from VMware and VMware Elite NSX partners, enabling the Company to benefit from VMware’s much broader distribution.”

He also sees the company broadening its overall distribution:

We are aware of a large, worldwide distributor that is close to closing an agreement to begin distributing Palo Alto’s products. While this would mean that this particular distributor will be at risk of losing their existing business to their current, legacy firewall partner should customers not migrate, when looking out over the next several years they believe that their best opportunity for success and ongoing growth will come from partnering with Palo Alto. We do not believe that this is or will be the only such instance of shifts in alliances within the channel, but think that as Palo Alto continues to innovate and successfully execute on its differentiated enterprise security strategy, other partners will make similar decisions. Further, in September, Palo Alto appointed Ron Myers as VP of Worldwide Channels and we understand that he has had noted success in engaging several large new distribution partners and believe that he will have a meaningful impact on accelerating Palo Alto’s push into international markets.

Update: Also today, Barclays‘s Raimo Lenschow raised his rating on the shares to Overweight from Equal Weight, while maintaining a $78 price target, citing three factors:

First, the underlying trends in the market appear to be improving, evidenced by our most recent CIO survey (also published today) in which Security was seen as the top driver of IT spend in 2014. Second, the recent pullback in high-multiple names has created a more compelling entry point and on a relative basis our downside risk to further pullbacks is limited. Finally, the overhang from the litigation with Juniper appears to be dissipating with investors once again refocusing on the fundamental strength of the business model.

According to our most recent CIO survey (also published this morning); security took over as the top spot when we asked enterprises ‘What are the biggest trends likely to drive spending decisions in 2014?’ Given the rise in high-profile cyber attacks and data breaches circulated by the media, we were not too surprised by the results though we still believe this incremental attention will translate to more dollars spent on next-generation security providers. While we also believe these results are likely to benefit most modern security solutions, we would highlight Palo Alto as an incremental beneficiary given the company’s recent portfolio enhancements which were made through both organic product innovation (PA-7050, WildFire) as well as the company’s recently announced acquisitions (Morta Security, Cyvera).

After a melt-down in software names, the stock valuation is attractive, he thinks:

The weakness in software names over the last month has been quite pronounced, especially among high-multiple names where we have seen declines of ~16% vs. ~2% for the S&P 500. As we noted a bit earlier, we believe the recent pullback has presented a more convincing entry point and as Palo Alto continues to trade at a discount to comparable high-growth software vendors (~5.5x EV/CY15 Sales vs. ~7.5x on average), while it’s difficult to time the end of the rotation out of high growth, we believe the inexpensive valuation makes the risk/reward trade look particularly attractive here.

About Tech Trader Daily

Tech Trader Daily is a blog on technology investing written by Barron’s veteran Tiernan Ray. The blog provides news, analysis and original reporting on events important to investors in software, hardware, the Internet, telecommunications and related fields. Comments and tips can be sent to: techtraderdaily@barrons.com.